Sunday, September 02, 2012

Technology and the Web are destroying far more jobs than they create. We will need to develop a "Third Way" based on community rather than the Market or the State to adapt to this reality.

What better day to ponder the future of work than Labor Day? Long-time correspondent Robert Z. recently shared an essay on just this topic entitledUnderstanding the 'New' Economy.

The underlying political and financial assumption of the Status Quo is that technology will ultimately create more jobs than it destroys. Bob's insightful essay disputes that assumption:

Over the past 15 years, the global economy has experienced structural changes to a degree not seen in nearly 150 years. Put simply, the Industrial Revolution of the 1800s has given way to a post-industrial economy. In this post-industrial economy, technology has now evolved to the point where it destroys more jobs than it creates.

Still, most people are Luddites to some extent. Human nature is to resist dramatic change, either actively or passively, until we have no other choice. If you don’t believe that, just listen to our presidential candidates.

Both Mitt Romney and Barack Obama will give us happy talk about maintaining entitlement benefits (e.g., Medicare and Medicaid) that cannot possibly be sustained. They will talk about energy self-sufficiency. They will talk about creating jobs. They will tell us that we can somehow ‘grow’ our way out of our economic distress. But neither candidate will admit that technology now destroys more jobs than it creates, because to do so would be to commit political suicide. The fact is that none of the happy talk will ever come true. Instead, the Federal Government, with the tacit approval of both major political parties, continues to run trillion-dollar-plus deficits year after year in a futile attempt to spend our way out of our economic problems and to sustain an economic model that cannot be sustained

Those who believe that bringing manufacturing back to the US will also bring back jobs are trying to fight a war that has already been fought and lost. Why? The answer is technology. It’s actually a fairly simple process now to bring production of many items back to the US, simply because of automation and robotics. A factory filled with robots can operate 24 hours a day, 7 days a week, 52 weeks a year, so long as the raw material inputs keep flowing into the factory. Robots don’t take breaks, don’t make mistakes, don’t call in sick, don’t take vacations, don’t require expensive health insurance, and don’t receive paychecks. A fully automated robotic manufacturing facility might require only 100 workers, while a traditional assembly line facility might utilize 3,000 workers. That’s a huge difference in the number of jobs. The simple fact is that most of the lost manufacturing jobs are never coming back.

What about all the marketing, administrative, accounting, and IT jobs that we think can’t be outsourced or automated? Well, retail enterprises now tailor any number of special offers directly to individual customers by mining data from reward programs. That doesn’t take an expensive ad budget or a huge marketing department, since it’s all automated. Have you ever noticed that most of the advertising you see while you surf the Web is tailored to things you might be interested in buying? That’s all automated – huge numbers of marketing professionals are just not needed.

In the accounting world, ‘lean accounting’ attempts to streamline accounting processes and eliminate accounting inefficiencies. A byproduct of ‘lean accounting’ is often greater use of technology and a significant reduction in the number of accountants and accounting clerks. In the IT (Information Technology) sector, computer algorithms for high-frequency stock trading (HFT) have become so complex that specialized software now writes new HFT programs and algorithms. That reduces job opportunities for programmers. The net result of all these examples is not job creation. It’s job destruction.

How about government jobs and government-related jobs? Well, think about the US defense budget. It’s a huge example. We surely do not need as many tanks and fighter jets as we used to, now that we have remote-controlled drones to do many of the jobs required. And with the availability of these drones, we might not need as many aircraft carriers, ships, or military personnel either. What about the Post Office? Do we really need daily mail service in an electronic world?

The point is that as we let go of old methodologies, whether in the private sector or in government, huge numbers of jobs simply disappear. As a society, we need to admit that ‘free-market’ capitalism is not going to bring back these lost jobs. Thanks to technology, society is capable of meeting basic human needs (food, clothing, shelter, transportation) with far fewer workers percentage-wise than were needed in the past. But as a society, we also need to admit that socialistic solutions won’t work either, simply because human nature is to take care of ourselves and our families first. Once we have provided for ourselves and our families, very few of us are both willing and able to provide for every stranger that might knock on our door seeking assistance.

As a nation, we must at some point address any number of major economic issues, including the massive overhang of debt (public and private) that cannot possibly be repaid and demands for future entitlement payments that cannot possibly be met. As a society, we ought to admit that we cannot borrow our way to prosperity. Unless interest rates are zero forever and creditors are willing to forego scheduled repayments forever, borrowing our way to prosperity is a mathematical impossibility.

One point is certain. Even if we find the political will to deal with the mathematics of our economic problems, we will never find long-term solutions to our economic issues until we recognize the profound economic changes wrought by technological advances. This is especially true with respect to our traditional view of a job and a paycheck. While it is true that new opportunities will always exist, these opportunities may not be as plentiful as the jobs of the past once were. And these opportunities will generally require more advanced skills than many of the jobs of the past. Technology has fundamentally changed the nature of paying work, and it is also one of the major economic issues of our time.

About the author:
Bob Z., of Vancouver, Washington, is a Corporate Finance executive who retired in 2007 from an upper management position with a Fortune 500 corporation.

Thank you, Bob, for your forthright appraisal of technology and jobs. The decline in labor's share of the GDP (gross national product) is sobering:

Here are some other points to consider:

1. The build-out of a new technology creates a large but temporary number of jobs. This has been the case for some time: the construction of the railroads created a jobs boom that soon disappeared in a financial bust as rail was over-built and profits were non-existent for many of the extraneous or duplicate lines.

Telephony and telecom followed similar arcs, and did the build-out of the Internet infrastructure.

2. Technology maturation leads to diminishing return on labor as incremental advances in productivity are capital-intensive. Semiconductor manufacturing is a good example; fabrication facilities (fabs) cost upwards of $2 billion each even as the number of workers need to operate the fab declines. Profit margins on many high-technology products are razor-thin, flat-screen displays being a prime example, and diminishing margins further pressure labor costs.

3. Software is leading the next-generation industrial revolution, automating many tasks that were considered "safe" from automation. As Bob pointed out, this includes securities trading and accounting. (I would add tax preparation for the majority of tax situations.) Can the law, academia and government remain immune? Unlikely.

4. Although few dare contemplate this, the low-hanging fruit of technology may have already been plucked. Take healthcare as an example: antibiotics and vaccines virtually eliminated many diseases at a very low cost per dose (though some diseases are coming back due to unvaccinated host populations and bacterial adaptation).

Antibiotics are "one size fits all" technologies: they act basically the same on every target bacteria and in every host. Compare that universality to the spectrum of individual responses to cancer treatments and other medications: one size does not fit all, and many of the most profitable drugs of the past few decades treated symptoms, not the underlying illness.

It is increasingly clear that there is no "magic pill" that kills all cancers, or even specific cancers in all patients. Lifestyle diseases such as diabetes appear impervious to "magic bullet" cures, as the causal factors of the disease are complex. The same can be said of diseases of aging and environmental factors.

In other words, the notion that tens of billions of dollars in high-tech research will yield "one size fits all" low-cost treatments of complex diseases has been shown to be problematic, and very possibly a fantasy.

5. The Internet is destroying vast income streams that once supported tens of thousands of jobs in industries from finance to music. Craigslist has gutted the once-immense income stream from newspapers, and web-based marketing has shredded print-media advert page counts. Global competition and pressure to maintain profits and margins relentlessly drive enterprises to slash payrolls.

6. As I have discussed here many times over the years, the rising costs of taxes, benefits and regulations have squeezed small businesses. In response, many small companies rely on automation and software to perform tasks that until recently required a human worker.

Those small businesses that cannot prosper via technology are going under, and the risks posed by ever-higher costs have raised entry barriers to starting a small business. These trends are visible in this chart:

The array of web-based tools available to entrepreneurs now is astonishing. Why take on the risks of hiring people when you can do the work yourself with low-cost web tools and software? For many small enterprises, that is the only way to survive.

Advanced societies face a dilemma that cannot be solved by more debt or more technology: how to distribute not just the output of the economy, but the work and responsibility so that everyone has an opportunity to contribute and earn their keep.

Those who have plowed through my books know that I see community as the only viable way forward. Many aspects of human life cannot be turned into a "market opportunity," nor can they be taken over by the insolvent central-planning Central State. Paying people to stay home and rot is not a solution, but neither is paying people more than they produce in competitive markets. There is a "Third Way," but we've lost the skills and infrastructure required. Of the three elements of civil society, the Market and the State have crowded out Community. We either re-discover the labor-value of community or we devolve further into a potentially "death spiral" social and financial instability.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution.Rather than being powerless, we hold the fundamental building blocks of power. We need neither permission nor political change to liberate ourselves. A powerless individual becomes powerful when he renounces the lies and complicity that enable the doomed Status Quo’s dominance.

Thank you, James M.($30), for your supremely generous contribution to this site-- I am greatly honored by your steadfast support and readership.

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